Personal Finance
Does A High P/E Ratio Mean That The Stock Market Is Overvalued?
By Seedly  •  March 1, 2018
Price/Earnings Ratio (PE ratio)

What does a high PE ratio really mean? What is the significance of a high PE ratio and does it necessarily means a good chance to short a certain stock and make money?

The PE ratio we commonly use is trailing P/E:

It is obtained by taking the current price divided by the previous annual earnings. For the S&P 500, we take the price divided by the trailing earnings per share. In short, Market Price ÷ Earnings Per Share It gives us an idea of how much (in terms of multiples) are you paying for each dollar of earnings. For example, a PE ratio of 15 simply means you are willing to pay 15 dollars now for each dollar of previous earnings.

With Warren Buffet saying that “Buy when people are fearful, sell when people are greedy”. A PE ratio of 15 should be our golden

...
Read the full article
By Seedly
Launched in 2016, Seedly helps users make smarter financial decisions with its budgeting app which allows its 40,000 users to sync up their financial accounts and better manage their cash-flow. Last year, we introduced a new community feature which allows users to crowdsource knowledge from peers before making a financial decision.
LEAVE A COMMENT
LEAVE A COMMENT

Your email address will not be published.

*

Your Email Address will not be published
*

Read More Articles
More from thefinance